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The results saw the government secure a majority in the House of Representatives, while in the Senate, the extra seats won mean Labor is expected to be in a position to pass legislation on this measure with only the support of the Greens.
In its current form, the Bill will introduce an additional 15 per cent tax on earnings of superannuation balances exceeding $3m, with an implementation date of 1 July 2025. The tax will only be applied to earnings above the $3m threshold, not the entire balance.
It is unclear at this stage what the final legislation will look like, or if the implementation date of 1 July 2025 will remain or be deferred.
The tax is based on the member’s year-end superannuation balance (across all funds). As the first year of operation will be the 2025-26 year, it’s the member’s adjusted total super balance on 30 June 2026 that is relevant. Therefore, an individual with more than $3m in superannuation at the start of, or during 2025-26, who reduces their balance to $3m by 30 June 2026 will not be impacted by the tax.
With the tax applying to 2025-26 FY, even with a start date of 1 July 2025, there is still time to assess any plans and implement strategies prior to 30 June 2026 to avoid or reduce the Division 296 tax. It’s critical to wait until the final legislation is passed before withdrawing any funds as there might not be an opportunity to contribute that money back into super if the legislation does not proceed as expected.
For many affected members, keeping funds in superannuation will continue to be the best option as the rate of tax is still concessional in comparison to personal or corporate tax rates. For others, it may be an opportunity to review their current investment vehicles to identify the most tax effective strategies moving forward.
While Division 296 tax has sparked debate within the industry, it is important to note that superannuation death benefits tax can often have a far more substantial financial impact for those with non-dependent beneficiaries (such as adult children) and also warrants consideration. For further information on how Superannuation Death Benefits tax is applied, read our article here.
The above information is provided as an information service only and, therefore, does not constitute financial product advice and should not be relied upon as financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs. You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice that takes account of your particular objectives, financial situation or needs, you should consider seeking financial advice from an Australian Financial Services licensee before making a financial decision in relation to any of the matters discussed.
